Snap Greek election threatens to plunge eurozone deeper into crisis

It is expected that smaller parties opposed to austerity cuts in the country could make big gains and jeopardise a €110bn (£91bn) bailout.

It came amid growing tensions across the continent as the Spanish prime minister clashed with his Italian counterpart over the state of Madrid’s finances.

Lucas Papademos was appointed as a “technocrat” prime minister in Athens in November and headed a regime with the aim of steering the country through its spiralling debt crisis and pushing through harsh austerity measures.

The 64-year-old, former vice president of the European Central Bank, had been tasked with ensuring Athens was given the next tranche of its initial €110bn bailout from the European Union and International Monetary Fund – and to ratify a second €130bn bailout.

Mr Papademos told his ministerial colleagues yesterday that in the five months since their interim government had been formed they had shown that “we can co-operate, combine viewpoints when necessary and put our differences aside, making decisions for the good of the country”.

“The main goals of our government were achieved,” he added.

His government was backed by the majority Socialists and their main rivals, the conservative New Democracy party. Parliamentary opposition to austerity measures brought the previous government of Socialist prime minister George Papandreou to the brink of collapse.

But the two traditionally dominant parties have seen their support hammered as Greeks endure a fifth year of recession and suffer repeated rounds of wage and benefit cuts as the unemployment rate surges.

The conservative New Democracy party, led by former foreign minister Antonis Samaras, is leading in the opinion polls for the next election. However, the polls suggest it will not receive enough votes to form a government and would have to seek another coalition with the Socialists, as smaller parties fiercely oppose the terms of bailout agreements.

Mr Samaras’s main opponent, Evangelos Venizelos, resigned as finance minister on 19 March to run in the election as leader of the Pasok party. Greece’s economy has shrunk 16 per cent in the past four years as a result of the crisis, and widespread dissatisfaction with high unemployment and austerity has led to a wave of strikes and demonstrations.

Not only could Greece become politically unstable but there could be a majority in parliament opposed to the further spending cuts that Brussels insisted on as a condition for the second bailout.

Meanwhile, Spanish prime minister Mariano Rajoy rounded on his Italian counterpart Mario Monti in a row over Spain’s finances.

Reports in Italian and Spanish newspapers quoting Mr Monti as saying Spain’s financial problems were the main reason for renewed tensions on debt markets in Europe irritated Spain.

Mr Monti’s office, however, denied the comments.

“I wish to say the following with regard to some statements which have been made in the EU, and more explicitly last night by some EU leaders,” Mr Rajoy said yesterday. “We hope that they assume their responsibilities and are more cautious in their statements.”